Question

Has the “baby boomer effect” impacted market demand and market supply in your industry? If so, how?

Answer 1

The labor market in the United States is facing a new challenge. The boomer generation (born in 1946-1962) is reaching retirement age with two headwinds causing delayed retirement: boomers are a great deal more educated than previous generations and their retirement plans are more likely to be perceived as insecure and inadequate. Thus, boomers will cause the labor supply of older workers (those who are 55 to 74 years old) to increase relative to the labor supply of prime-age and younger workers. This change will likely have unexplored consequences on wages for workers of all ages. Economic theory suggests an increase in the relative labor supply of older Americans could lower wages, or slow-down the wage growth for younger workers if older workers are used extensively as their substitutes rather than complements. Two researchers were forward-looking in their concern about these relative wage effects and conducted one of the few comprehensive studies exploring the substitutability of older and younger workers in 1988. Levine and Mitchell (1988) estimated the elasticities of complementarity of workers by age and sex categories and found that older workers were often used as substitutes for some groups of workers in the 1960s and 1970s.

We expand their study using similar methodologies, slightly different age groups and much more recent data on labor supply and wages. The information is vitally important now because the labor supply of people aged 55 and older is expected to increase by about 7.2 million workers which will be the fastest growing part of the labor force by 2024 (Bureau of Labor Statistics (BLS) 2015; Burtless 2013) because both the older population and their predicted labor force participation are increasing. During the 30 years from 1984 to 2014, the average real hourly wages of older workers have been growing faster than younger workers’ wages. While older workers today, on average, are paid much more than older workers were paid 30 years ago, the real wage for jobs occupied by younger workers has changed only slightly in the last 30 years. We investigate the proposition that an increase in the supply of older workers in the next seven years may lower wages for all workers by 2024 by estimating the elasticities of complementarity among age/sex groups of workers.